Insights 
VT 
US private sector payrolls increased by 42,000 in October, surpassing the market forecast of 25,000, as reported by Automatic Data Processing (ADP). This follows a revised decline of 29,000 in September, marking the first job addition since July, despite the modest hiring pace compared to earlier in the year.
Annual pay rose by 4.5% but has remained largely unchanged for over a year. The report did not trigger market movements, with the US Dollar Index stable around 100.20. Weekly, the US Dollar strengthened against the New Zealand Dollar, with varied performances against other currencies.
Adp Employment Change Report
The ADP Employment Change report’s improvement was expected due to an ongoing US government shutdown affecting labour market data. The Federal Reserve’s decision to cut rates on October 29 was influenced by signs of a weakening labour market. Despite the modest job gain, concerns remain about the subdued job market.
The report is seen as pivotal data for the Federal Reserve, balancing policy between a weak labour market and inflation risks. The ADP report is scheduled for release at 13:15 GMT, with expectations for 25,000 new jobs. The US Dollar has appreciated due to the Fed’s hawkish stance, with the Index rising nearly 1.3% since the last Fed meeting.
Technical analysis indicates that the USD Index is in a bullish cycle, with resistance above 100.00 and identified support levels. Overall, the Federal Reserve’s actions and statements are vital for the US Dollar’s performance, particularly regarding interest rate changes in response to inflation or employment conditions.
Given the soft ADP jobs number of 42,000, we should not treat this as a sign of strength, even though it beat the low forecast. This report validates the Federal Reserve’s decision to cut interest rates on October 29, confirming that the labor market is losing steam. The modest job gain, the first since July, reinforces our view that the economy is cooling significantly.
Key Tension And The Federal Reserve
The key tension for us now is the Fed’s predicament, balancing this weak job market against persistent inflation, which we saw came in at 3.8% year-over-year in the last CPI report from October. This conflict between slowing growth and sticky prices is a classic recipe for market volatility. We expect this uncertainty to keep the VIX elevated, as it has been, currently hovering around 22.
All eyes are now on the official Nonfarm Payrolls (NFP) report due this Friday, but we must be cautious about its reliability due to the recent government shutdown’s impact on data collection. The market is forecasting a gain of around 50,000 jobs, but the whisper numbers are all over the place, with some expecting a negative print. This wide range of possibilities makes the NFP release a major potential catalyst for a sharp market move.
In the coming weeks, we should consider buying options to protect against, or profit from, a large swing in asset prices. Given the uncertain direction, strategies like straddles or strangles on major currency pairs like the EUR/USD could be effective. This allows us to benefit from a spike in volatility regardless of whether the market moves up or down after the NFP data.
The US Dollar Index is holding steady near 100.20 for now, but the Fed’s dovish pivot is a strong headwind against further appreciation. Looking back, we saw a similar situation in late 2023 when fears of a weakening economy began to outweigh inflation concerns, leading to a temporary halt in dollar strength. We anticipate that a very weak NFP number could finally break the dollar’s recent upward trend.
